Railroads warn of long closure of Houston-area tracks

Flood waters from Tropical Storm Harvey cover a road in Iowa, Calcasieu Parish, Louisiana, U.S., on August 29, 2017. Reuters/Jonathan Bachman Aug 30 (Reuters) - Major US railroads have warned it could be a long time before normal operations resume after Hurricane Harvey caused catastrophic flooding in the Houston area.

The closure of rail lines in a grain transport hub and nexus for cross-border traffic with Mexico presents a costly headache for companies ranging from automakers to farmers which use the lines to send ethanol, cereals and auto parts to and from Mexico or to be loaded onto ships.

The top two US railroads, Union Pacific Corp and Berkshire Hathaway Inc's BNSF Railway have suspended operations in the area affected by the storm, as has regional railroad Kansas City Southern.

"We don't have a historical precedent with this one," said Thomas Williamson, owner of Florida-based rail broker Transportation Consultants Co. "I expect service to be disrupted anywhere from two to six weeks."

Omaha, Nebraska-based Union Pacific said in a service update issued on Tuesday it was running trains though Laredo, Texas, and re-routing traffic away from Houston.

"Until the storms move out and the flooding recedes, we are not able to access or inspect our tracks and facilities in the greater Houston area," the company said. It did not estimate the time needed to restore operations to normal.

BNSF said in a Tuesday customer announcement that normal train flows in the area are not likely to resume for "an extended period."

Given the extensive flooding, railroads have been relying on drones to gauge impact, according to Williamson.

Unknown costs

Kansas City Southern, with much of its business focused US-Mexico trade, may have greater exposure to disruption caused by the storm than the other two railroads, said Cowen & Co analyst Jason Seidl in a client note.

Kansas Southern said in its last update on Monday that it had stopped traffic through impacted areas. It said it will update customers as the situation develops.

Rail customers and their transportation providers will find ways to bypass Houston, said Rick Ehrensaft, ‎Chief Operating Officer at Grand Worldwide Logistics Corp, a warehouse and third-party logistics company with locations across the United States.

"There will be some triaging using other modes of transportation to get around anything that's been routed through there," he said. "What that's going to do to costs is unknown."

Once the rails are up and running, railroad operators will likely benefit as goods for recovery and rebuilding are sent to the region, said independent railroad analyst Anthony Hatch. "We can be sure that the rails will be quicker to recover than most as they have been through this before."

The railroads all have experience with storm disasters. Hurricane Katrina in 2005 damaged about 200 miles (320 km)of CSX Corp track on the Gulf Coast. That caused around $250 million in damages, 90 percent of which was covered by insurance. (Additional reporting by Jarrett Renshaw; Editing by Bill Rigby)